SCOTUS declines to arbitrate web retailer tax collection debate

Cyber-Monday 2013 has come and gone, but one thing that will be sticking around is the practice of collecting state taxes on the goods purchased online during it. On Monday, Dec, 2 the Wall Street Journal reported that U.S. Supreme Court declined to intervene on the decade-old argument of whether or not states can force online retailers to collect state sales tax for items purchased online.

The challenge to this law was brought to the SCOTUS by Amazon and Overstock.com in 2008, and they hoped to eliminate a New York State law that allowed for the collection of state taxes for goods shipped to that state. New York was among the first states to implement laws that required online vendors to collect taxes and the motion to do so was upheld by its highest state court.

While Overstock and Amazon argue that charging taxes squelches their ability to grow in an increasingly competitive marketplace, owners of physical stores have frequently pointed to lack of tax collection as an unfair advantage for online vendors.

The decision does not set any official word on the right to impose tax collection, but it does suggest that it is a state’s right to do so.

In 1992, the Supreme Court ruled that states could not collect tax from an online vendor unless that vendor had a physical presence in their state. The New York state law has been able to circumvent that by focusing on marketing arrangements made by online dealers. New York considers any state-based website that directs traffic to an online retailer as a physical marketing presence, therefore making online retailers liable for collecting tax.

Earlier this year the Senate approved legislation that would make it easier for states to collect online sales taxes, but the law has been held up in the House by tax opponents.

Amazon has urged a more holistic solution to what has thus far been a patchwork of state and federal provisions. “Congress can and should act to resolve" the sales-tax issue, the WSJreports an Amazon spokesman said Monday.